A recent white paper by Aon suggests that now is the moment to leverage carve-outs, and PwC Legal’s Bart Vanstaen agrees, but only if businesses are truly prepared.
The whitepaper reveals that carve-outs are outpacing traditional transactions. Bart, who has worked in PwC Legal’s corporate M&A department for 20 years, attributes this to:
● Activist shareholders pushing to divest non-core activities.
● Companies facing financial pressure, such as the need to free up cash flow, repay debt, or fund new initiatives.
● The pursuit of value creation.
To successfully navigate carve-outs, he proposes breaking it down into three dimensions:
1. The When
First, determine when the carve-out will be implemented. “You can fully separate the business before going to market, or implement the carve-out between signing and closing. The big upside with the former – primarily for the buyer – is certainty. It’s easier to do due diligence, and you may already have audited standalone financials that make reps and warranties cleaner”, Vanstaen explains, recalling a case where the carve-out was spun into a separate company four years before its sale, “to allow everything to bed in and build buyer confidence.”
But there may be considerable downsides as well. “Separation creates dissynergies, which the seller absorbs until closing. If no buyer is found, those costs stay, and you risk drawing market attention or unsettling employees”, he warns.
Therefore, many companies only prepare the carve-outs on paper. “The real separation becomes a condition precedent to closing. That gives you also more flexibility, meaning you can still fine-tune the scope with the buyer.”
2. The How
Second, think of the method. “For cross-border groups, this might mean stitching together several transactions, a new holding company, share transfers, splitting entities with out-of-scope activities, and so on”, Vanstaen explains.
He points out that this is often the hardest part. “You basically have two options: an asset deal or a corporate-law demerger”, he says. “With a demerger, assets and liabilities are transferred by operation of law, meaning you don't need consent from each counterparty. However, this requires a stricter procedure, often with waiting periods for creditor protection.”
“There have been several developments in EU company law lately, and the EU legislature is increasingly active these days”, Vanstaen adds. The EU Mobility Directive introduced a whole new suite of corporate structuring mechanisms a couple of years ago, which has been a game-changer for how businesses organise separations and carve-outs. Additionally, the proposal for introduction of a new type of European company, the EU Inc., could bring a new set of corporate rules that make navigating multiple national regimes easier. “Although it’s still in proposal phase and not yet enacted, this will generate interesting opportunities for pan-European groups to organise their legal structures and operations across the continent in a streamlined manner.”
Then, there’s tax. “Some structures are tax-neutral while others aren’t, so tax modelling must run in parallel”, Vanstaen advises. “And don’t forget employment law, such as TUPE rules and work council consultations. This can be time-consuming and needs to be in the plan from day one.”
3. The Reality
Third, consider whether the carved-out company can actually stand on its own from day one. Often, it can’t. That is where transitional service agreements (TSAs) come in; does the seller keep providing certain services, and for how long?
Vanstaen shares some practical tips: “Nail down scope, service levels, pricing, and a clear exit strategy. You want TSAs to support the transition, with a clear end date in mind by when the carve-out business should be fully open and able to run independently to avoid it becoming a source of friction. Appoint a dedicated TSA manager on both sides to keep things on track.”
In terms of leadership, he encourages bringing in the right people and developing the skills relevant to the new business. “It boils down to making sure the people in the business can work together and make it a success.”
Finally, it is critically important that the carved-out operations hold all necessary permits and licences. Particularly in heavily regulated sectors – such as pharmaceuticals or manufacturing – ensuring that every required authorisation is in place on Day 1 is essential to guaranteeing operational continuity.
Deal readiness can make the difference
Carve-outs may be complex by nature, but the difference between a smooth transaction and a value-destructive one often comes down to the planning. As Bart implies, this requires a clear view of how the business will operate independently, how change will be led, and which risks need to be addressed early. These steps can essentially dictate how the deal unfolds.
When the preparation is in place, sellers are better positioned to maintain momentum, manage expectations, and avoid late-stage surprises that can affect price, timing, and certainty.
READ ALSO: PwC Legal: "Preparing your company for sale in a thorough way is the key to success"
